By Edward Green

Barter trade is a powerful instrument that represents a solution for companies with available stock or services. By accepting payment in trade money instead of cash, a business maximizes their efficiency by increasing stock turnover or billable hours. Using trade currency earned, that company can pay for goods or services they want, without paying cash.

1. Barter Generates New Clientele: Allowing you to increase your market and preserve your cash paying customers. This is incremental business – clients who bypass rival businesses to do business with you.

2. Barter Moves Surplus Stock: Retailers must keep their stock moving. Barter will bring you buyers to move surplus stock, eliminating advertising costs and weighty discounting otherwise needed to achieve this.

The U.S. Department of Commerce hates it. The World Bank questions its long-term economic impact. However, an estimated 130 countries are doing almost US$500 billion worth of global trade under counter-trade-related schemes.

If world relied solely upon Counter Trade, U. S. wouldn't have a $278,000,000,000.00 trade deficit. The world debt crisis and growing weakness in American Dollar has made trade financing very risky and thus increasingly costly. Western countries, watching jobs flee overseas, are slowly returning to idea of bi-lateralism as a way to reduce trade imbalances.

There are five basic types of Counter Trade: barter; buy-back, counter-purchase; tolling and offset. We're going to compare a simple multi-country barter model against traditional export model. We'll assume that exporter can get ninety day net terms from American manufacturer. And, we'll presume that air cargo shipments take two days and surface shipments take forty days. We'll assume that pre-tax profit at each step will be 33% and that exporter will structure their company to minimize their legal tax obligations. Keep in mind that there are tens of thousands of potential products, two hundred countries in world and nearly an infinite number of ways to put counter trade deals together.

The Traditional Export Model

The Exporter will move to Reno and incorporate export business in Nevada. Their business is to export American-made computer microchips. They have a buyer in Singapore offering a 90 Irrevocable Letter of Credit (ILC) and their manufacturer is willing to defer payment for 90 days. They buy $200,000 worth of microchips, airship them and sell them in Singapore for $275,000. Ninety days later, they have a gross profit of $75,000 and a pretax profit of $66,000. After paying U.S. Federal income tax, they earn about $44,800. Since they can repeat microchip export four times each year, their after tax profit is nearly $100,000. This is more money than majority of people earn living in Nevada. Not bad.

The Counter Trade Model